“Stop Money Laundering!” Conference - 26th February 2002, LondonGood morning ladies and gentleman. I am very pleased to open proceedings this morning. I would like to thank the organisers of this conference for giving me the opportunity to speak on an issue which is, in fact, central to the prospects for international development.
That may surprise some of you here. Money laundering has, of course, long been the preserve of financial investigators and law enforcement agencies. Increasingly, though, those concerned with international development are recognising the negative effect that money laundering, and corruption more widely, have on development.
This has been a fairly recent change. Until a few years ago, it was even forbidden to mention ‘corruption’ within earshot of the World Bank. That changed after the speech by the Bank President, Jim Wolfensohn, in 1996 when he talked about the ‘cancer of corruption’.
Since then, the international consensus has shifted firmly from the old view that prevailed in some quarters – namely that corruption oiled the wheels of doing business in developing countries - to one that now states clearly that corruption damages development and makes it more difficult to eliminate poverty. And money laundering is a particularly damaging aspect of corruption in many of the countries with whom we work.
I want to cover three main issues this morning. First, why DFID sees combating money laundering as an important development issue. Secondly, I want to highlight the role that the UK is playing. And finally, I want to touch on the UK banking system’s responsibilities in helping to deal with the problem.
So, why should a development agency attach importance to tackling money laundering? Money laundering – by definition - involves ill-gotten gains. The fact that someone needs to launder money usually means that it has been acquired through criminal or corrupt activity. In developing and transitional countries it is often linked to large scale ‘leakage’ from public coffers by corrupt officials or politicians. Or to put it more bluntly, it has been stolen from the people of the country.
Money laundering means personal enrichment by a few, to the detriment of the many. It siphons off resources from public services and strangles public sector investment and growth. And we also know that it is the poor who suffer the most as a result.
When I first looked at this issue, I was frankly staggered by the sheer scale of the problem. Measuring the scale of money laundering worldwide is difficult, but the IMF estimates the global volume of money laundering to be between $600 billion and $1.8 trillion a year. It can be difficult to get perspective with such numbers. Look at it this way. $600 billion - the lowest estimate - is roughly equivalent to the GDP of Canada – the ninth largest economy in the world. That’s enough money to lift a large number of people out of poverty.
Or look at it this way. It is estimated that in Zaire, former President Mobutu stole more than US$10 billion during his time in power. That’s $10 billion compared to that country’s GNP of around $5.3 billion. In other words, Mobutu stole nearly twice the country’s current annual income! – that is the equivalent of siphoning off £2.5 trillion from the UK government.
Look at Nigeria. Nigeria received some $1.1 billion of international development assistance during the Abacha years, while $6 billion is thought to have been siphoned out of the country by him and his family during that time. That’s a big hole in the aid bucket.
In both these cases, the loss of so much money has clearly been disastrous for the country’s development. And, again I stress, in both cases it is the poor who have suffered most.
Money laundering rightly causes outrage in the countries from where the money is being lost. It also provokes anger here in the UK – particularly when stolen money ends up in UK banks or where the country concerned is also a recipient of British development assistance.
In DFID have measures in place to ensure that UK aid money reaches its intended recipients. But the fact is that money is siphoned off from poor countries by corrupt leaders and officials can serve to undermine UK public support for development spending. So that’s another reason why we are concerned.
So what are we doing ? Well, our approach has two main strands.
The first is to promote stronger international collaboration. We must support those governments that are tackling money laundering and show greater collective solidarity against those governments that are not. For this reason, the UK is playing a leading role in negotiations for a United Nations Convention Against Corruption – which will provide a global standard for all countries.
The UK is strongly committed to working with the Financial Action Task Force (or FATF) - the principal international body involved in the fight against money laundering. We aim to ensure that its 40 Recommendations and 8 Special Recommendations on Terrorist Financing are complied with, as the minimum international standards to protect against money laundering.
As many of you will know, FATF tracks country progress through a system of self-assessment and peer reviews and operates a special list of countries that fail to make adequate progress. We fully endorse this international vetting process, but we believe there is a related problem that the international community must also address and my Department is working on this.
The countries now featuring on the FATF special list are increasingly developing nations. The most recent additions include Egypt, Guatemala, Indonesia, Myanmar and Nigeria. They often lack the expertise and the resources to capture and prosecute money launderers or to enact effective preventative measures. Through our development programme, we are therefore supporting countries across Africa and Asia which are committed to tackling money laundering.
DFID is co-sponsoring an anti-money laundering programme across 10 countries in South and Eastern Asia. We are supporting the Eastern and Southern Africa Anti-Money Laundering Group. And we are collaborating with the UN Global Programme on Money Laundering, the World Bank and the IMF with the aim of producing computer-based training for developing countries. It is in everybody’s interests to help developing countries to put in place strong anti-money laundering mechanisms and monitoring.
But it is not just an issue for developing countries. Far from it. A number of developed countries have had painful experience of money laundering within their own borders and, as a result, have learnt important lessons about how to tackle the problem. In the UK’s case, it was arguably the Abacha experience which led us to strengthen the legislation operating here.
So we all have lessons to share with each other. And for this reason, we have provided a two-year grant to enable the UK National Criminal Intelligence Service to host the secretariat of the Egmont Group – the international network of Financial Intelligence Units. This support aims to make the Egmont Group’s expertise available to governments across Africa and Asia, and I would welcome suggestions from the banking industry on how we could together transmit skills to developing countries. We are keen to capitalise on the wealth of expertise within the UK financial sector.
The second part of our approach is to recognise that the UK also has an influential role to play as a participant in the global financial system. We must ensure that Western financial institutions take all reasonable steps to detect and stop flows of illegitimate funds from developing countries, especially where assets may be misappropriated from the state. Moreover, the vital role of the financial services sector in the UK’s economy makes it crucial that we preserve the City of London’s reputation for integrity.
With this in mind, this government has taken several steps in recent months to strengthen the UK’s anti money laundering regime.
Firstly, major legislative changes will result from the Proceeds of Crime Bill, which was introduced in the House of Commons last autumn and which we expect to become law during the present session of Parliament. The Bill will provide a sound and comprehensive framework for the domestic fight against money laundering.
The Bill will simplify existing money laundering legislation which has grown piecemeal over the years and create a single offence of money laundering. It will also enable suspect assets to be frozen more quickly by permitting freezing as soon as an investigation starts. Currently, criminal charges need to have been laid in the requesting country before freezing orders are possible in the UK. This has often frustrated efforts to freeze assets quickly enough.
The Bill also tightens the disclosure rules to be observed by financial institutions. This is an essential part of the anti-money laundering process and here the UK banking system has a critical responsibility. The government believes that those who work in the regulated financial sector must exercise a greater degree of diligence in combating money laundering.
The Bill introduces what is in effect a ‘negligence test’ on persons who work in the regulated sector. They will be required to report not just when they know or suspect that another person is engaged in money laundering - as under current regulations - but also where there are reasonable grounds for knowing or suspecting that a transaction is linked to the laundering of criminal proceeds. This will increase the risks for those financial professionals who choose to turn a blind eye to money laundering or suspicious transactions.
These are substantial changes. The Government firmly believes that they are necessary in order to preserve the integrity and stability of our internationally renowned financial sector.
A second major recent change has been the Government’s establishment of a new regulatory regime for Money Service Businesses. The Money Laundering Regulations 2001, which came into effect in November last year, oblige Bureaux de Change, Cheque Cashers and Money Remitters to register with Customs and Excise by July of this year. The registration process, combined with new prosecutorial powers for Customs, will strengthen our ability to tackle the illegitimate end of the sector while allowing legitimate businesses to operate without unfair competition from non-compliant and criminal businesses. The scope of this new regime will include informal remitters, such as Hundi and Hawala systems.
The third element in increasing our defences is our commitment to implement the recent European Parliament Directive on Money Laundering into UK law by June 2003. In doing so, the UK will extend the scope of Money Laundering Regulations to a broader range of professions. These will include casino operators, real estate agents, lawyers, accountants and dealers in high value goods. A Money Laundering Advisory Committee is also being set-up to act as a forum for discussing the UK’s anti-money laundering regime at a strategic level.
Finally, the events of September 11th brought home the importance of tackling financial crime and the role that such criminal activity often plays in the financing of terrorist groups. The Government has strengthened the UK’s anti-terrorist measures through the recent Anti-terrorism, Crime and Security Act and many of these new powers will also assist in the combating of money laundering. In addition, a new Terrorist Financing Unit has been established at the National Criminal Intelligence Service.
These far-reaching reforms add to the tough new powers acquired by the Financial Services Authority under the Financial Services and Markets Act, which came into force on December 1st last year. The FSA now has the power to make regulatory rules on money laundering. It also now has the power to prosecute breaches of Money Laundering Regulations as a prosecuting authority in its own right.
The combined impact of these reforms plainly shows this government’s determination to squeeze out opportunities for money launderers who want to abuse the UK financial system. We are making progress, but we need to do more – including making sure that money that has been looted from developing countries is returned.
Finally, I just want to touch on the responsibilities of the UK financial sector itself. The sector, and all those who work in it, have the most important role to play both in supporting the new legislation and in swiftly implementing the new procedures required.
There is no doubt that money laundering, along with broader aspects of corruption, is very difficult to detect. There is no doubt that internet banking creates new challenges. But we must confront the problem, and ‘Know your customer’ remains the best means of protection. Who is this person ? What is their background ? And do their transactions match the picture that we have?
It is good to read, therefore, that the number of disclosures from the financial sector to the Economic Crime Unit of NCIS (the National Criminal Intelligence Service) rose by 27% last year, although out of 575 banks registered banks only 170 – less than 30% - reported any suspicious transactions.
I am aware of the software that some banks have developed to spot unusual patterns of movement of funds, and I hope others will follow suit.
None of us should be under any illusions that this will be anything other than a long-term process. But unless we take concerted action, corruption and money laundering will only get worse, and it is the people who will suffer that we should always keep in our mind’s eye.
In a world:
- where the better off live on a average of $55 a day while one in five of our fellow men and women live in just $1 a day
- where 118 million primary age children have no teacher, no textbooks, no classroom because they do not go to school
- where every three seconds a child dies in sub-Saharan Africa from a disease that is entirely preventable
we owe it to them to make sure that money laundering does not add to the daunting challenges that they already face. After the events of 11th September, the moral case for action against poverty has been reinforced by the self-interest case. The price of failure has never been higher, but at the same time the prospects for progress have never been better – provided we carry through our determination to make a difference.